INSTRUMENT FOR PRE-ACCESSION ASSISTANCE (IPA II)

INDICATIVE STRATEGY PAPER FOR ALBANIA (2014-2020) ADOPTED ON 18/08/2014

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TABLE OF CONTENTS

PART I: INTRODUCTION ................................................................................................................................ 3

1. Purpose ............................................................................................................................................... 3 2. Consultation on this Strategy Paper .................................................................................................... 4

PART II: ANALYSIS OF THE NEEDS AND CAPACITIES.................................................................................... 4

1. Political and economic context ........................................................................................................... 4 2. Context for the planning of assistance ................................................................................................ 6

PART III: THE OVERALL DESIGN OF PRE-ACCESSION ASSISTANCE TO THE COUNTRY ............................. 10

PART IV: EU ASSISTANCE DURING THE PERIOD 2014-2020 ...................................................................... 13

1. Democracy and governance .............................................................................................................. 13

2. Rule of law and fundamental rights .................................................................................................. 16

2.1 Justice and fundamental rights .................................................................................................... 16

2.2. Home affairs ................................................................................................................................ 19

3. Environment and Climate Action ..................................................................................................... 21

4. Transport ........................................................................................................................................... 24

5. Competitiveness and innovation ....................................................................................................... 27

6. Education, employment and social policies ...................................................................................... 29

7. Agriculture and rural development ................................................................................................... 31

8. Territorial cooperation and regional cooperation .............................................................................. 34

ANNEX 1: INDICATIVE ALLOCATIONS ......................................................................................................... 36

ANNEX 2: INDICATORS AND TARGETS ........................................................................................................ 37

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PART I: INTRODUCTION

1. Purpose

This Indicative Strategy Paper (the Strategy Paper) sets out the priorities for EU financial

assistance for the period 2014-2020 to support Albania on its path to accession. It translates

the political priorities set out in the enlargement policy framework into key areas where

financial assistance is most useful to meet the accession criteria

The Instrument for Pre-accession Assistance (IPA II)1 is the main financial instrument to

provide EU support to the beneficiaries in implementing reforms with a view to Union

Membership. Financial assistance under IPA II pursues the following four specific objectives:

(a) support for political reforms, (b) support for economic, social and territorial development,

(c) strengthening the ability of the beneficiaries listed in Annex I to fulfil the obligations

stemming from Union membership by supporting progressive alignment with,

implementation and adoption of, the Union acquis, (d) strengthening regional integration and

territorial cooperation. Furthermore, the IPA II Regulation states that financial assistance shall

mainly address five policy areas: a) reforms in preparation for Union membership and related

institution-and capacity-building, b) socio-economic and regional development, c)

employment, social policies, education, promotion of gender equality, and human resources

development, d) agriculture and rural development, and e) regional and territorial cooperation.

In order to increase its impact, EU financial assistance shall be concentrated on the areas

where reforms or investments are most needed to meet accession criteria, and tailored to take

into account the capacities of Albania to meet these needs. Assistance shall be planned in a

coherent and comprehensive way with a view to best meeting the four specific objectives and

address as appropriate the thematic priorities for assistance listed in Annex II of the IPA II

Regulation, as well as the thematic priorities for assistance for territorial cooperation listed in

Annex III of the same Regulation.

Moreover, EU assistance is only one of the means to achieve the necessary progress. When

deciding on priorities for action, due account is taken of the beneficiary' own means as well as

of the support provided through other EU instruments and by other stakeholders, in particular

bilateral donors or International Financial Institutions. In view of the above aspects,

preference shall be given to providing financial assistance under a sector approach, to ensure

a more long-term, coherent and sustainable approach, allow for increased ownership, facilitate

cooperation among donors, eliminate duplication of efforts and bring greater efficiency and

effectiveness.

With a view to delivering on the priorities set for EU financial assistance for Albania for the

coming seven years, this Strategy Paper sets meaningful and realistic objectives, identifies the

key actions and actors, describes the expected results, indicates how progress will be

measured and monitored, and sets out indicative financial allocations. The priorities defined

for financial assistance will serve as a basis for the (multi-) annual programming of IPA II

funds from 2014 to 2020. The indicative financial allocations allow for an appropriate amount

of assistance to remain available as a "reward" on the basis of an assessment of performance

and progress over a period of several years but not later than in 2017 and 2020 respectively,

as defined in the IPA II Regulation.

1 OJ L 77, 15.03.2014, p. 11.

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This Strategy Paper shall be reviewed at mid-term and revised as appropriate. It may also be

revised at any time upon the initiative of the European Commission.

2. Consultation on this Strategy Paper

The Strategy Paper has been developed in close cooperation and partnership with the

Albanian government. Furthermore, consultations took place with relevant institutions such as

the judiciary, local government, civil society, international financial institutions, international

organisations and other donors.

The consultation process included a self-assessment by the Albanian authorities using the

sector approach assessment criteria, i.e. the state of play of sector policies and strategies,

medium term budgeting, coordination, monitoring and performance assessments. Priorities

relevant for the EU integration process were identified on the basis of the progress reports and

the EU enlargement strategy. A strategic dialogue with the European parliament has also been

conducted. Following the national elections in June 2013, additional consultations took place

with the newly elected government.

PART II: ANALYSIS OF THE NEEDS AND CAPACITIES

1. Political and economic context

Albania has a population of 2.8 million inhabitants2 with a surface area of 28.750 km

2 and a

coast line of 362 km. It borders Greece, the former Yugoslav Republic of Macedonia,

Montenegro, Italy and Kosovo*3.

Albania is a parliamentary democracy. Since the fall of communist rule in 1991 the country

has developed gradually its constitutional and legislative framework which is largely in line

with European core principles and standards. Local government is founded on the principle of

decentralisation and exercises its powers in accordance with the principle of local autonomy.

Albania has a unicameral parliament which is the highest body of state power. The Parliament

elects the President of the Republic. Its 140 members are elected by direct, universal suffrage

in a regional proportional system every four years. Multi-party elections were held for the

first time in 1991. The Democratic Party (DP), the Socialist Party (SP) as well as the Socialist

Movement for Integration (SMI) have formed successive government coalitions. There are

also smaller parties with significant influence which have been part of these coalitions.

Following the June 2013 elections which were won by the Alliance for a European Albania (a

coalition composed of the SP, the SMI and a number of other parties) a coalition government

was appointed led by the SP with Mr Edi Rama as Prime Minister, and with the participation

of the SMI. The President of the Republic, Mr Bujar Nishani, was elected in June 2012 for a

five-year period.

Polarisation of the political life and weaknesses in public sector management affect the

country's democracy and economy. Public administration is characterised by high

2 2011 population census.

3 * This designation is without prejudice to positions on status, and is in line with UNSCR 1244 and the ICJ

Opinion on the Kosovo Declaration of Independence.

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politicisation and risks of corruption, which hamper its professionalism, continuity and

effectiveness. The judiciary is equally affected by politicisation and corruption.

The economy of Albania has maintained limited but positive growth during the recent global

financial and economic crisis. Gross Domestic Product (GDP) growth decelerated from 3.3%

in 2009 to 1.6% in 2012, compared with an average annual growth of over 6% in the period

2003-2008. The current GDP per capita is about 30% of the EU-28 average (in purchase

parity standards PPS). The public debt/GDP ratio was 64% in 2012 and exceeded 70% at the end of 2013, which is among the highest in the region.

3 The main contributors to GDP are:

agriculture (22.5%), industry (11.4%), construction (10.5%) and services (56%).

Albania's main exports are minerals, fuel and electricity (40.4%), textiles and footwear

(28.2%) and construction materials and metals (14.7%). The main trading partner is the EU

with a traditional surplus in favour of the EU (EUR 2.5 billion imports against EUR 1.0

billion exports in 2012). Albania's long-standing current account deficit has narrowed from

15% in 2008 to 10.9% of GDP in the context of the 2012 growth slowdown but could rise

again to up to 15% in 2016 according to IMF forecasts. The large structural deficit on the

balance for goods and services has traditionally been coupled with a substantial net inflow of

transfers, particularly of remittances by Albanians working abroad, but the latter have been on

a downward trend in recent years. In the past years, Albania has managed to attract relatively

high levels of FDI that financed a significant part of the current account deficit.

The overall industrial and trade performance is characterised a lack of competitiveness of the

economy. Competitiveness is hampered by deficiencies in the rule of law, including

enforcement of contracts, unclear property titles, lack of specialised and skilled labour force,

and a large informal economy. According to the Global Competitiveness Report 2012-2013,

Albania is ranked in 89th position of 144 countries and in the 123rd position regarding

innovation.

In terms of the general socio-economic development, as measured by the Human

Development Index (HDI)4, the country figures in the 'high human development' category,

ranking 70 out of 187 countries and territories in 2012. The unemployment rate is high and on

an increasing trend (14 % in 2012 and approximately 17 % at the end of 2013). There is a

high prevalence of long-term unemployment and large gender differences in labour force

participation. Worryingly, more than 30 % of youths are neither in employment nor education

nor training.

About 14% of the population is estimated to be vulnerable to poverty.5 The labour market is

distorted by a large informal sector. A substantial labour force potential exist with more than

40% of the working age population6, essentially women being inactive. The share of youth

not in education, training and employment (NEET) is twice as high as in the EU-277. More

than three quarters of the unemployed are long-term unemployed.8

While Albania remains committed to anti-discrimination policies and gender equality, there

are concerns as regards the implementation of equal treatment of Roma and Egyptians; the

lesbian, gay, bi-sexual, trans-sexual and inter-sexual population (LGBTI); and women.

3 Source: Eurostat (2013).

4 Source: UNDP (2013)

5 Source: Albanian Institute of Statistics (INSTAT)

6 Source: INSTAT Labour Force Survey, q4 2013

7 Source: Albania draft Jobs and Skills Strategy

8 Source: European Commission Progress Report 2013

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Women are overall under-represented in public life and are discriminated in terms of access to

employment, education and property. Domestic violence, despite recent progress, remains a

concern.

Albania has considerable investment needs, for instance in transport, environment or energy

infrastructure. To illustrate: Albania had in 2011 113 km of roads and 14 km of rail per 100

000 inhabitants which represent 13.8 % and 32% of the EU-27 average of 821 km and 43 km

per 100 000 inhabitants of roads and rail respectively. A similar picture exists in other sectors

requiring infrastructure investments. In particular, water treatment and waste management are

at early stages of their development.

The country is susceptible to effects of climate change, in particular flooding and drought, as

well as possible electricity shortages due to a high dependence on hydro-power which

requires seasonal energy imports.

2. Context for the planning of assistance

2.1. EU Enlargement Strategy

In 2003, the Thessaloniki European Council confirmed that the future of the Western Balkans,

including Albania, is within the European Union. Since 2004 Albania participates in the

Western Balkans Stabilisation and Association Process and concluded a Stabilisation and

Association Agreement with the EU in 2006. Albania applied for EU membership in 2009.

Following a request by the Council the Commission submitted its Opinion on Albania's

application in November 2010.

In view of the progress made since then by Albania, the Commission recommended in

October 2013 that the Council should grant Albania the status of a candidate country on the

understanding that Albania would continue to take action in the fight against organised crime

and corruption. For the opening of accession negotiations the Commission found Albania

would need to meet key priorities related to public administration and judicial reform (with a

focus on professionalism and de-politicisation), fight against corruption and organised crime

and reinforcement of protection of human rights, including property rights.9 The European

Parliament also urged these priorities to be addressed and to consolidate the progress made so

far.10

In June 2014, the European Council granted candidate status to Albania.

Visa liberalisation for citizens of Albania travelling to the Schengen area is in force since

December 2010. A readmission agreement between the European Union and Albania is in

force since 2005.

The rule of law will remain at the heart of the enlargement process. The full and timely

implementation of the relevant strategies and the action plans in the area of rule of law and

fundamental rights will be essential in this regard.

The present strategy assumes that Albania will remain committed to its EU integration

ambitions, that it will continue implementing relevant reforms and that the process will

continue in the period 2014-2020, including the starting of accession negotiations once the

country has achieved the necessary degree of compliance with the membership criteria.

9 EU Enlargement Strategy and Main Challenges 2013-2014

10 European Parliament (2013) Resolution on the Albania 2013 progress report, 2013/2879(RSP)

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Albania's economic situation requires strengthening of economic governance to progress

towards gradually becoming a functioning market economy. In line with the Commission's

Enlargement Strategy of October 2013, enlargement countries including Albania are invited

to enhance economic policy and its governance through the preparation of annual National

Economic Reform Programmes and a Competitiveness and Growth Programme which will be

submitted every second year. The National Economic Reform Programmes will lead to

country-specific policy guidance on reforms needed for achieving further progress in

gradually meeting the economic accession criteria. An integral part of the EU enlargement

strategy regarding Albania is public financial management (see further below in part IV,

section 1).

2.2. Relevant national/regional strategies

The Government of Albania is preparing a draft National Strategy for Development and

Integration (NSDI) for the period 2014-2020. The NSDI provides the strategic framework for

all sector and cross-sector strategies and is the backbone of the Integrated Planning System

(IPS) a set of operating principles to ensure that government policy planning, budgeting and monitoring are linked and operate efficiently. The NSDI guides the Medium-Term Budget

Programme (MTBP), as well as annual budget allocations, by providing policy objectives

which are included in the Ministry of Finance's instructions for the budget preparation by all

Ministries and agencies.

Following the establishment of the new government in 2013, a new and comprehensive

process for developing the Government's policy priorities was established. This process

included identifying priority objectives, carrying out assessments through well-defined

indicators, and preparing roadmaps and concrete action plans to be implemented by the line

ministries concerned. A Delivery Unit at the Prime Ministers Office implements and monitors the process. The NSDI and sector strategies, as well as a national strategy for EU

integration, will subsequently be drafted and are expected to be finalised before the end of

2014. An integrated planning system (IPS) ensures strategic coordination.

Albania's national plans are envisaged to be aligned with several regional integration

initiatives. This includes the commitment to the regional South East Europe (SEE) 2020

growth targets. Moreover, Albania participates in the new EU Strategy for the Adriatic and

Ionian Region (EUSAIR) which aims at promoting economic and social prosperity and

growth in the region by supporting blue growth, improved connectivity of transport/energy

networks, better environmental quality and sustainable tourism actions. The strategy also

includes, as cross-cutting aspects: capacity-building, communication, research and innovation

and SMEs.

Furthermore, Albania also cooperates in the development of a regional transport network in

line with the multi-annual plan of the South East Europe Transport Observatory (SEETO).

Albania is a signatory of the Energy Community Treaty. Albania has signed the Central

European Free Trade Agreement (CEFTA) which prepares the trade policy of the country to

meet the standards of EU membership. Finally, Albania participates in the Environment and

Climate Regional Accession Network (ECRAN) and the Rural Development Standing

Working Group which enhance regional cooperation in the implementation of environmental

and agricultural policies.

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2.3 Conditions for managing pre-accession assistance

The following elements need to be considered, when looking at Albania's general ability to

manage funds in line with EU legislation and best practice:

Sector approach

A functioning sector approach requires the existence of government policies and strategies,

medium term budget frameworks, coordination, and monitoring of results and performance

assessments. Albania is well positioned to meet these criteria, as it is developing the NSDI

2014-2020 and related sector strategies. The strategies will be complemented by a Medium-

Term Budget Plan (MTBP) which outlines the financial framework for the implementation of

the sector strategies. Donor coordination is in place through sector working groups

coordinated directly by the Deputy Prime Minister's office (see also section 2.4. below).

Monitoring and performance assessments are being improved by efforts to strengthening

monitoring and the activities of sector working groups which will also consider the dialogue

on performance and achievements in the respective sectors.

Indirect management of funds

The conditions are in principle in place for indirect management (formerly decentralised

implementation system): in 2014, the Commission adopted a decision regarding the conferral

of management of EU funds to the Albanian authorities for component 1 of IPA I. This

accreditation for IPA I is expected to be the basis for indirect management of respective

programmes funded from IPA II.

Sector reform contracts (sector budget support)

Albania will be eligible for sector budget support, provided that the following four pre-

conditions are met: a stable macro-economic framework; a credible programme and relevant

to improve public financial management; transparency and oversight of budget; and credible

and relevant sector strategies that are consistent with the EU accession strategy.

Albania is well placed to meet these conditions for the following reasons:

1. The macro-economic situation is overall stable and has improved in recent years;

2. With respect to public financial management, the preparation of a credible reform

programme is expected to be completed by end-2014;

3. In terms of the transparency of the budget, the medium term budget plan is part of the

documentation tabled to Parliament which ensures oversight of the budget, updates to

the legislation regarding the functioning of a state audit institution are expected to be in

place by mid-2014;

4. Policies and strategies are either in place or are being developed in line with the

development of the NSDI mentioned above in section 2.2.

Despite the progress made so far, there is a need for further consolidation and improvements.

In particular, there is a need to further strengthen economic growth and reduce public debt. In

terms of public financial management, there is a need to further improve revenue forecasts,

internal controls, and expenditure management. Albania is committed and has started to

address outstanding issues in the context of respective IMF and World Bank agreements in

early 2014. IPA II will reinforce these efforts by further supporting public financial

management reforms directly, possibly through a sector reform contract (sector budget

support), once the eligibility criteria are met. This can provide the basis for reform contracts

in other sectors which will be defined later at the time of programming.

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2.4. Donor coordination and complementarity with other EU assistance

Albania will ensure that IPA II assistance is integrated in the national development plans and

medium term budget framework and is coordinated well with the assistance provided by

others. Albania's development and EU integration efforts are supported by over 40 bilateral

and multilateral donors11

.

This overall donor coordination is under the responsibility of the Deputy Prime Minister with

support from the Department of Development Programming, Financing and Foreign Aid

(DDPFFA) of the Prime Minister's office. As mentioned above in section 2.2, the strategic

framework is provided through the NSDI. The implementation of strategic plans is intended

through the medium-term budget programmes which include projections for domestic and

donor funded resources to implement the strategies. The coordination of donor funds is

therefore embedded in the systems of strategic planning and related budget programmes.

The overall coordination within the Albanian government includes a Strategic Planning

Committee as an inter-ministerial committee chaired by the Prime Minister that reviews and

endorses the governments policy and fiscal priorities. This involves: (i) setting the policy priorities and strategic directions within a sound fiscal framework at the beginning of the

annual planning process; (ii) deciding on the inter-sectoral resource allocation (MTBP

preparation ceilings) over the medium term, i.e. 3 years; (iii) reviewing the draft MTBP prior

to the preparation of the state budget; and (iv) receiving regular reports on progress against

key IPS commitments.

In order to ensure coordination and cooperation among line ministries within specific sectors,

a number of inter-ministerial working groups (IMWG) were established. The coordination of

activities by the DDPFFA include the maintenance of a project database, the coordination of

the meetings of the international donor community, Sector Working Groups (SWGs) and

issuing a monthly donor dialogue newsletter. A high-level donor-government dialogue is

taking place once per year as 'round table' to focus on aid harmonisation, followed by regular

operational meetings. This work is supported by a Donor Technical Secretariat (DTS),

composed of four multilateral donor organisations, including the EU and a rotating

participation of two bilateral donors. The SWGs are supporting the coordination at sector

level and include government, donor representatives and other stakeholders as required. The

envisaged 33 groups exchange information focusing on policy coordination, prioritisation of

assistance and monitoring of implementation.

In addition to the coordination by the government of Albania, the EU is regularly consulting

with other donors, civil society and others (e.g. judiciary), both at the time of preparing the

overall strategic approach, as well as for the preparation of annual programmes.

2.5 Consistency with EU policies

Financial assistance to the sectors identified in this Strategy Paper will be granted in line with

and in support of the EU enlargement strategy for Albania. It will be shaped to be consistent

with EU policies relevant for the respective sectors, in particular with the Europe 2020, the

EUSAIR, and the SEE 2020 strategies as EU flagship initiatives to boost growth and jobs and

promote smart, inclusive and sustainable growth initiatives as well as the climate policy

objectives of the EU. The objectives set until 2020 reflect the level of economic development

and Albania's level of preparedness in the accession process.

11

See: http://dsdc.gov.al/dsdc/Donor_Database_33_2.php

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PART III: THE OVERALL DESIGN OF PRE-ACCESSION ASSISTANCE TO THE

COUNTRY

Albania has policies and strategies in place for reforms and investments which will facilitate

its EU accession process. The EU's financial assistance will help to drive these reforms

forward, facilitate investments relevant for the accession process and contribute to Albania's

socio-economic development.

Clearly, institutional and legislative reforms, as well as investments in the development of

infrastructure, require much bigger resources than Albania's national budget, IPA or support

from other donors can provide. Prioritisation of efforts is therefore essential and in this

respect, the recent EU enlargement strategy for 2013-2014 recognizes the need to address

"fundamentals first". Taking into account Albania's own needs assessment as well as the

Commission's findings, pre-accession assistance for the period 2014-2020 will focus on

governance and the rule of law and competitiveness and growth.

Governance and the rule of law

Governance and the rule of law have been identified in the Commission's progress reports on

Albania as well as in Council conclusions as key challenges Albania will have to address on

its way to accession. Concerning democracy and governance, there is a need to further

strengthen democratic institutions in particular the role of the parliament for national

consensus building. A key issue to be addressed concerns Albania's public administration,

including Public Administration Reform (PAR) process and its coordination, policy-

making, and civil service and public administration organisation and functioning both at

central and local level. Further efforts are needed to depoliticise the public service, ensure

continuity, promote ethical standards in the administration, strengthen meritocracy in

appointments, promotions and dismissals, and increase its efficiency and financial

sustainability. A sound and functioning public administration both at central and local level is

a prerequisite for progress in many other sectors, and essential for an increase in investments,

both foreign and domestic. Specific measures relating to the judiciary are necessary to

improve the business environment and to promote economic growth.

In view of its high public debt (over 70% of GDP at the end of 2013), Albania needs

continued support in reforming its public financial management (PFM) system. Support will

be provided for a phased implementation of a multi-annual PFM programme (incl. a strategy

and action plan), covering revenue collection and administration, budget preparation, budget

execution with cash management, debt management, public procurement, accounting and

reporting, public internal financial control and external audit. The PFM support will be

addressed in a joint effort with other international institutions such as the International

Monetary Fund (IMF) and the World Bank, who have already launched support measures in

early 2014. Improvements in the PFM system will also provide a sustainable basis for

economic governance programmes. Furthermore, the statistics systems need further support in

order to increasingly perform in line with EU standards.

Civil society needs further strengthening, including capacity building and encouraging of the

creation of an enabling environment for its development and greater involvement of

stakeholders in reforms, including through greater transparency of government action and

spending.

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The 2013 Council conclusions underline in particular the need to intensify efforts in the rule

of law area. Furthermore, the EU enlargement strategy identifies rule of law as being at the

"heart of the enlargement process". For this reason, the EU will support reform efforts in the

field of rule of law and fundamental rights. Within this area, the recommendations by the

Council of Europe's Venice Commission will provide the framework for future support to the

justice system. The fight against corruption, especially within judiciary institutions, is a key

priority in this regard. Fundamental rights of minorities and vulnerable social groups

including Roma and Egyptians as well as children require EU support for their improvement.

The Albanian government's efforts to establish a clear framework for property rights

deserves IPA II assistance in consideration of the wide impact that property rights have on

issues such as land and credit markets, infrastructure development, and other. Efforts to

strengthen the enforcement of the legislation need substantial and sustained support,

especially regarding the fight against corruption, organised crime, money laundering,

trafficking in human beings and of drugs.

Competitiveness and growth

The global economic crisis has underlined the need for Albania to strengthen its economic

governance in particular the policies towards competitiveness and growth. In this regard,

several related sectors need to be supported:

In the environment and climate action, transport, and energy sectors, Albania needs to

build further capacities to manage these sectors in order to prepare and enforce policies in line

with EU legislation and best practice. In addition, the funding needs for investments are

substantial: related to the environment sector for example, it is estimated that to comply with

the relevant EU directives in the water sector alone, Albania would need investments for over

EUR 2 billion; additional infrastructure needs are also estimated to cost over several hundred

million euros. Because of the limited availability of financial resources and since the

sustainability of investments in these sectors has so far not been fully satisfactory, IPA II

assistance will foresee the development of Albanian administration's capacities to operate and

sustain such investments, before considering new ones. Concerning transport, priorities are

to ensure the completion and maintenance of existing infrastructure of the South East Europe

Transport Observatory (SEETO) comprehensive network (such as the Corridor VIII), the

connectivity to the trans-European transport network, and to address safety issues in all

modes of transport.

With regard to the energy sector, there is a need for reforms in order to ensure the smooth

functioning of the overall system and the good governance of the sector. Funding for energy

generation is usually bankable and could be funded by financial institutions. Support to

strengthening administrative capacities, alignment with the EU legislation and special efforts

needed to resolve problems related to the accumulated debts in the sector, losses and theft, as

well as the low bill collections rates will be considered for support.

Climate action represents a cross-sector element that applies to most sectors in the Strategy

Paper, notably transport, energy, agriculture and rural development, as well as disaster

management. Climate action relevant expenditure will be tracked across the range of IPA II

interventions in Albania, in line with the OECD-DAC's statistical markers on climate change

mitigation and adaptation.

The low levels of productivity and competitiveness as well as of the living conditions in the

rural areas require support within the agriculture and rural development sector. A

preparation of administrative structures able to provide services and manage funds in line

with the EU agricultural policy is required. IPA II support is needed for creating an efficient,

sustainable and innovative agro-food sector which is competitive in the EU market and offers

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employment, social inclusion and better living standards for farmers and the rural population.

Sound implementation of agricultural support measures strengthening business approaches

and access to information and markets; food safety, veterinary and phytosanitary services, and

controls functioning in line with EU directives, require IPA II assistance with special

attention to potential export markets. Additionally, IPA II funding is needed to assist in

improving the fisheries sub-sector.

Economic growth needs strengthening in order to foster the competitiveness and innovation,

through strengthening the innovation capacity in general and in particular through the

development of small and medium sized enterprises. Albania's integration in regional and EU

markets needs to be enhanced, as well as the contribution of exports to the country's growth.

IPA II funding is required to address these needs by supporting the accessibility and demand

for business development services, access to finance for SMEs, market integration, and by

further developing export markets, including niche markets and tourism. In this context, IPA

II might also foresee assistance to the preservation of cultural heritage.

The sector education, employment and social policies equally require support, notably for

achieving inclusive growth. Beyond informal employment and low participation, there is a

need to clearly establish the challenges of the labour market and design relevant capacity

building accordingly. Albania needs to improve the quality and relevance of all levels of

education and develop its skill base in line with labour market needs. The chances of entering

the labour market for women and disadvantaged groups have to be improved. Good

governance of this sector needs strengthening. Finally, further consolidation of the regional

cooperation and of the good neighbourly relations requires assistance in the area of territorial

cooperation and regional cooperation.

In addition, IPA support may also be given to unforeseen priority needs relevant to the course

of accession negotiations, which do not fall under these sectors. In particular, this may

include, but will not be limited to, ad hoc and short-term technical assistance to be supported

under the TAIEX instrument and through Twinning. Furthermore, IPA II may continue to co-

finance Albania's financial contribution for its participation in Union Programmes and

Agencies in the context of the on-going policy dialogue under the relevant sector and

accession negotiations chapters.

Finally, while programming IPA II assistance, specific attention will be paid to a number of

cross-cutting issues that impact more than one sector and therefore require action across a

number of sectors. These include the prevention of and fight against corruption,

environmental sustainability and climate action, gender equality, strengthening of democracy,

human rights and civil society participation as well as protection of cultural heritage as

appropriate.

An indicative financial allocation per policy area and sector resulting from the priorities

defined in this strategy paper are set out in Annex 1.

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PART IV: EU ASSISTANCE DURING THE PERIOD 2014-2020

1. Democracy and governance

1.1. Needs and capacities in the sector

In order to clarify the scope of this sector, it should be noted that the sector covers democratic

institutions and overall public sector management, including Public Administration Reform

(PAR) coordination, policy-making, civil service and public administration both at central and

local level; and public financial management (PFM), including revenue collection and

administration, budget preparation, budget execution with cash management, public

procurement, accounting and reporting, debt management, public internal financial control

and external audit. In addition, support will be provided for improving IT interconnectivity

and interoperability of customs and tax administrations with EU systems. Furthermore, the

sector covers support to statistics and evidence-based policy development and the capacities

for progressively adopting relevant EU legislation. Finally, civil society development is part

of this sector. The fight against corruption is an important element of public sector

performance and is further covered below by the Justice and fundamental rights sector.

Previous IPA assistance in the sector was provided for PAR, notably strengthening the

capacities in a number of crucial areas such as PFM, including taxation and customs

administration, public procurement, external audit, and statistics via tailored interventions of

technical expertise. EU support over the period 2007-13 stands at more than EUR 75 million.

In terms of activities of other donors, Sweden supports public finance reforms and statistics;

Austria supports public finance management reforms incl. taxation policy issues and gender

budgeting; and Austria and Switzerland support decentralisation issues; Germany supports

public service reform. An Integrated Planning System is being applied with the assistance of

the World Bank and with funding from the EU, as well as from Austria, Sweden and

Switzerland. Both IMF and World Bank are supporting PFM reforms, focusing on the long-

term reduction of public debt.

This sector is still characterised by needs for improvement in democratic consensus building,

a low degree of available human resources, a high degree of politicisation and, in general, by

an insufficient implementation of the legal framework. Performance based monitoring

mechanisms need to be strengthened, while impact assessment mechanisms need to be

established, in order to ensure sound implementation of policies, as well as evidence based

policy making. These issues are expected to be addressed in an overall PAR strategy which is

being developed.

Economic governance and PFM needs further improvements particularly in view of the high

level of public debt. The need for a PFM reform is recognised, and a comprehensive PFM

programme is being developed (see also part II, section 2.3). Structural obstacles to growth,

including the judicial and legal environment, need to be also addressed. Specific areas, such

as statistics, are vital for policy-based decision making. The management of specific sectors

such as the energy sector needs strengthening. Civil Society organisations and media are not

sufficiently supporting the democratic political culture and allow citizens to participate in

democratic decision making processes in an informed way. In addition, civil society

organisations are overly dependent on funding by foreign donors. Civil Society actors and

organisations could make a more substantial contribution to addressing many of these

challenges through their lobbying, advocacy and oversight activities at national, regional and

local level in every sector. They could create demand for enhanced transparency,

14

accountability and effectiveness from public institutions and facilitate greater focus on the

needs of citizens in policy-making.

1.2. Objectives, results, actions and indicators

In order to address the above mentioned challenges, the objective of future IPA II assistance

in this sector is to strengthen democratic institutions, support the public administration reform

process and improve public service delivery for preparation and implementation of national

legislation in line with the European standards and best practice. A further objective is to

enhance economic governance and support implementation of a comprehensive public

financial management reform. Support to civil society aims at further deepening the

democratic culture in the country, by developing an enabling environment and strengthening

the capacities of the various actors.

The achievement of the following results will receive EU support:

Democratic institutions conform to legal framework and allowing for consensus

building to support EU-related reforms;

A de-politicised, merit-based civil service system with integrity systems and ethical

standards is in place;

Civil service and public administration organisation, coordination, and functioning is

fully defined, including competency and responsibility of local governments, for

increased capacities in the delivery of services to citizens and businesses;

Legal predictability and enforcement of laws and court decisions is improved in the

interest of businesses and citizens;

Fiscal stability is improved, including sustainability of public debt;

Public finances are managed efficiently and sustainably, following implementation of

a sequenced public financial management reform programme covering revenue

collection and administration, budget preparation, budget execution with cash

management, public procurement, accounting and reporting, debt management, public

internal financial control and external audit;

IT interconnectivity and interoperability of tax and customs administrations with EU

systems are improved;

Tax and customs administrations are working in line with the EU rules and have an

efficient system in place to fight corruption;

Market surveillance, focussing especially on product safety and aimed at consumer

protection, is improved;

Decision making processes follow performance based monitoring and quality

statistical data collected and analysed in line with the standards of EUROSTAT;

Sufficient capacities are in place for managing the EU accession process, including for

policy development, and preparing and implementing adequate legislation;

Strengthened role of civil society in democratic processes and increased independence

of civil society from foreign donor funds.

The indicators to measure the achievement of the objectives will include (see full list of

indicators in Annex 2):

15

Progress made towards meeting accession criteria (EC);

Composite indicator (Government Effectiveness (WB), Burden of Government

Regulation (WEF) and Regulatory Quality (WB);

Stock of budget arrears (Deloitte survey);

Statistical compliance (Eurostat).

Regarding the action to be supported, EU assistance will include technical assistance and

capacity building for public administration reform and for democratic institutions,

including the parliament the various independent institutions.

As concerns economic governance, challenges related to macroeconomic stability and the

progress necessary to gradually become a functioning market economy will be dealt with

through the existing bilateral surveillance and the resulting country specific policy guidance.

Implementation of this policy guidance will be subject to an annual cycle of stock-taking,

which will clearly identify the gaps that will have to be addressed in order to make further

progress towards meeting the economic accession criteria. Based on this policy guidance,

annual follow up actions will be prepared in cooperation with providers of technical

assistance, in particular through the IMF. Implementation of a sequenced public financial

management reform programme will be supported in close cooperation with the IMF and the

World Bank in line with their already ongoing lending operations and will include technical

assistance to manage the reform efforts.

In the area of statistics, a close cooperation with Eurostat is envisaged in order to ensure

compliance with EU methodology, as well as assistance for capacity building and surveys.

Further strengthening of the taxation and customs administrations, in particular on

implementation and enforcement of legislation, will be supported in particular on

implementation and enforcement of legislation, together with the IT interconnectivity and

interoperability with EU systems. Additional specific needs for capacity building and other

technical assistance in the administration of other sectors (e.g. energy) will be considered for

support.

The development of sustainable civil society organisations (CSO) and media freedom will be

supported through technical assistance. The support to the enabling environment and the

building of capacities of civil society will be provided in line with specific EU guidelines for Civil Society development in the enlargement region. The civil society facility will

combine both multi-country and national IPA II funds in order to respond to different types of

CSOs, needs and sector contexts with a flexible, transparent, cost-effective and results-

oriented approach.

In terms of the conditions for sector support, as mentioned in Part II, section 2.2, several

sector strategies are currently under development which include e.g. the overall public

administration reform (PAR strategy), but also more specifically public financial

management, statistics, and others. A Strategy for the Integrated Planning System for 2005-

2015 has been approved and it covers the modernisation of the policy making and budget

planning processes and capacities at central level. Also, the 5-year National Statistics Plan for

2012-2016 has been approved by the Albanian Parliament. In general, there is lack of impact

assessment mechanisms, as well as of continuous monitoring and performance assessments.

The specific needs in the area of public financial management will be supported through a

sector approach in close cooperation with the IMF and the World Bank under the leadership

of the Ministry of Finance.

1.3 Type of financing

16

Assistance will be provided primarily through twinning, technical assistance, supplies of

equipment and possibly also through calls for proposals and direct grants to relevant national

authorities. Sector budget support will be considered to support the PFM and possibly other

elements of PAR reforms, provided that Albania meets the conditions for sector budget

support. Complementary support to the PAR reform area will be provided from the IPA II

multi-country programme through cooperation with SIGMA (OECD) and the Regional School

of Public Administration. Economic governance will also be supported under the multi-

country programme through cooperation with IMF. In the area of statistics, Eurostat will also

continue to provide support to the National Statistical Offices under the IPA II multi-country

programme. In the area of customs administration and regional trade, cooperation with the

Secretariat of the Central European Free Trade Agreement (CEFTA) will be supported

through multi-beneficiary programmes. IPA II may co-finance Albania's contribution for its

participation in the relevant Union Programmes; the details will be decided at the time of

programming.

1.4 Risks

The risks which could affect the achievement of the intended objectives and results are:

a) The macroeconomic situation could limit the scope for improvements in remuneration, employment, and PFM reform efforts;

b) A politicisation of civil society and media mitigate their potential role for strengthening the culture of democracy.

Regarding possible risk mitigating measures, it is therefore important to strengthen both (i)

the capacities of the Albanian authorities to monitor reform progress and take corrective

action, and (ii) the involvement of independent monitoring for recommending corrective

action to be taken. With respect to the risks identified above, both the National Economic

Reform Programmes (see above in part 2) and the political dialogue on the public

administration (see key priorities for the accession process, above section 2.1) are playing

important roles. In the area of PFM, EU budget support will directly address the risk related

to public debt and thus the PFM reforms.

2. Rule of law and fundamental rights

2.1 Justice and fundamental rights

2.1.1. Needs and capacities in the sector

This sector includes the functioning of the justice system in Albania, i.e. the relevant

activities of the Ministry of Justice, the judiciary and penitentiary institutions. It includes

broader issues such as the protection of human rights and the reform process concerning the

property rights, as well as media freedom. It will also address the fight against corruption

across the public institutions.

Previous IPA assistance focused on key institutional reforms and capacity building of the

various judiciary actors, primarily through assistance to the modernisation of the justice

system (EURALIUS projects). In addition, a number of infrastructure projects have

considerably increased the capacity of the penitentiary system to comply with international

standards. The EU stands as a leading donor also in relation to the promotion of human rights

as a result of several projects financed under the civil society facility and in the frame of the

European Instrument for Democracy and Human Rights. IPA I assistance in the sector

amounts to more than EUR 86.5 million. Various donors are providing support in the area of

17

justice and fundamental rights, e.g. Sweden, Italy, Netherlands, as well as the United States

and the United Nations. The World Bank is leading the reform process on property rights. In

addition, human rights and anti-discrimination measures receive support from the Council of

Europe and the OSCE.

An issue to be highlighted in the sector is a lack of solid analysis of its challenges and,

moreover, of possible solutions for its development. Challenges include the clear lack of

efficiency and performance of the judicial system as a whole, and an uncompleted legislative

framework to strengthen the accountability, independence, and efficiency of the judiciary. In

this respect, the recommendations of the Council of Europe's Venice Commission will

provide the framework for effective actions to strengthen the judiciary power in the Albanian

constitutional architecture. Furthermore, the judiciary infrastructure is inadequate and needs

upgrading and the education and training systems for the judiciary are insufficient.

Corruption is prevalent in many areas of public life and constitutes one of the major

challenges Albania is facing. The high level of corruption results in a low level of public trust

in the judiciary. Deficiencies in the legal and normative framework are conducive to

corruption. The track record shows that convictions and proactive investigations in the area of

corruption remain low. A holistic approach requires establishing a robust institutional

framework that prevents corruption, by improving the inter-agency co-operation and co-

ordination, strengthening internal control mechanisms, verification of asset declarations, and

control over political party financing. Particular attention needs to be put to tackle corruption

in vulnerable areas, such as public procurement, health, taxation, education, police, customs

and the local administration. The institutional setup needs to be substantially strengthened,

both in terms of staff and in terms of respecting the full independence of law enforcement and

judicial bodies dealing with investigations into corruption cases.

The management of property rights is a particular concern because of the importance for

land and credit markets and their impact on the performance of the economy. Legislation to

protect fundamental human rights including the rights of women, the disabled, children and

minorities such as Roma and LGBTI is not sufficiently in place. Concerns remain over media

freedom in Albania, and the appointment procedure of the members of the media regulatory

authority, the Audio-visual Media Authority, which does not fully guarantee their

independence. Finally, Albania risks not meeting the deadline of 2015 for the digital switch

over.

2.1.2. Objectives, results, actions and indicators

The EU will support Albania with the objective of creating an accountable, independent and

efficient justice system which is aligned to EU legislation and best practice.

The specific results to be achieved with EU support include the following:

The overall set-up of the justice system is reviewed, gaps analysed, and areas for

improvement are identified in regular intervals;

Legislation is further enhanced in order to ensure the independence of the judiciary;

Professionalism is strengthened through merit-based and transparent criteria for

appointments of judges, prosecutors and court administrators as well as through

evaluations of performance, merit based promotions and court inspections;

The independence, efficiency, integrity and accountability of the judiciary are

strengthened in practice at all levels of the judicial system;

The duration of proceedings is substantially reduced;

18

Full enforcement of judicial rulings is ensured and the system of bailiffs is

strengthened and fair;

The penitentiary system complies with international standards, including specific

treatment for different categories of detainees;

The approach to the fight against corruption has been reviewed and adjusted to

increase its effectiveness, including through necessary legislative changes, and fully

functioning capacities of the prosecution and law enforcement agencies, as well as

through a robust institutional framework to prevent corruption;

A solid track record regarding successful investigations, prosecutions and final

convictions in corruption cases;

Property rights management is further advanced and in line with the relevant

jurisprudence of the European Court of Human Rights;

A legal framework regarding the protection of human rights in line with EU

legislation and international obligations is in place;

The implementation of anti-discrimination and legislation related to the protection of

human rights is enhanced;

The national strategy for full social and economic integration of the Roma is

implemented, including through the Roma facility.

The indicators to measure the achievement of the objectives/results will include (see full list

of indicators and targets in Annex 2):

Progress made towards meeting accession criteria (EC);

Composite indicator Access to Justice (WJP) and Judicial Independence (WEF);

Composite indicator (Government Effectiveness (WB), Burden of Government Regulation (WEF) and Regulatory Quality (WB);

Composite indicator Global Corruption (TI) and Control of Corruption (WB);

Composite indicator Freedom of Press (FH) and Press Freedom (RWB).

In terms of action, EU support to the sector will include technical assistance and capacity

building for all judicial institutions. On the protection of human rights there might be

cooperation with other organisations active in this field in order to strengthen synergies and

allow economies of scale of the assistance. In terms of sequencing, it is envisaged to review

both the judiciary and the anti-corruption set up before designing further support.

With respect to the conditions for sector support, there is an approved justice sector strategy

for 2010-2015, which will be revised, while an action plan for the period after 2014 still needs

to be drafted. The crosscutting strategy on land property rights has been adopted for 2011-

2015 and should be updated. The updated strategies are going to be part of the NSDI 2014-

2020. Similarly, it is expected there will be a strategy for the prevention and the fight against

corruption. The lead Ministry in the justice sector is the Ministry of Justice. Coordination

with the judiciary institutions is essential for planning resources and ultimately achieving

results. The budget allocations to the sector have historically been low and it is necessary to

substantially increase them.

The area of property rights deserves special attention due to the enormous impact it has on

economic development, agricultural development, credit markets, and other. A strategy is in

19

place, as well as some donor funding from the EU and the World Bank. A separate

programme with the World Bank is envisaged to address the needs.

The protection of human rights will be supported through targeted measures, notably stand-

alone actions, at least in the first years of IPA II, to better align the country's institutional

framework with the EU and other international standards and further improve the protection

mechanism of existing bodies (Ombudsman and Commissioner for the protection from

discrimination). The promotion of human rights will also be enhanced through ad hoc support

to civil society, particularly in relation to access to justice, treatment of detainees and actions

such as access to health in favour of vulnerable groups and minorities such as Roma and

Egyptians, as well as LGBTI.

As regards Roma inclusion, in accordance with the Enlargement Strategy Paper for 2013-14,

IPA II will support and encourage periodic seminars and follow-up activities with rigorous

monitoring of implementation of operational conclusions through country monitoring

committees. Furthermore, IPA II funding through a Roma facility will finance support measures agreed in the national seminars, with improved cooperation with other international

organisations.

In conclusion, there is a prospect to assist the sector, possibly sub-sectors, through a sector

approach and possibly sector reform contracts (sector budget support) provided the conditions

are met.

2.1.3. Types of financing

The assistance to justice reforms will preferably be through sector budget support if the

conditions are met. Before the eligibility is established, service contracts, twinnings and

other12

will be used to deliver the assistance. On property rights, there will be close

cooperation with the World Bank which is already actively engaged in this area.

Assistance to improve the judicial and penitentiary infrastructure in terms of buildings and

equipment will be delivered through works and supply contracts or through sector budget

support if possible, provided there is clear commitment to and progress in implementing

reforms in the sector and the infrastructure can be operated and maintained. The participation

in relevant Union Programmes will be supported and details decided later at the time of

programming.

2.1.4 Risks

One risk that could affect the achievement of the intended objectives and results are delays

due to the limited financial and human resources available to carry out the reform processes.

It is therefore important to strengthen both (i) the capacities of the Albanian authorities to

monitor reform progress and take corrective action, and (ii) the involvement of independent

monitoring for recommending corrective action such as additional capacity building or

additional financial support to be taken. In addition, these risks will be monitored through a

policy dialogue on the respective key priorities related to corruption and organised crime (see

above section 2.1).

2.2. Home affairs

12

For instance from multi-beneficiary assistance or TAIEX

20

2.2.1. Needs and capacities in the sector

The focus of this sector is on police cooperation and the fight against organised crime,

terrorism and drugs, trafficking in human beings, money laundering, migration and asylum

policy, and integrated border management.

IPA support has so far focused on the enhancement of the capacities of the Albanian State

Police and other law-enforcement agencies. Assistance has been mostly provided through

advisory missions, which have played an important role in the support to the fight against

organized crime, corruption and illegal trafficking, as well as the development of the

integrated border management. IPA I support also focused on the enforcement of the

regulatory framework on anti-corruption and anti-money laundering in order to devise

effective tools to fight crime (e.g. seizure of assets). A number of infrastructure projects have

also created or upgraded the Police facilities, including the border crossing points. IPA

support for home affairs has so far reached the amount of approximately EUR 26.5 million.

The US Government is a complementary donor in this area.

Concerning home affairs, the main challenges related to EU integration which need to be

addressed by future assistance include the need for more proactive law enforcement and a

credible track record of investigations, prosecutions and final convictions, especially in

corruption and in organised crime cases. There is a general need for better enforcement of

legislation, in particular regarding anti-money laundering, seizure of assets, irregular

migration and trafficking in human beings and of drugs.

2.2.2. Objectives, results, actions and indicators

The EU will assist Albania to create an effective and efficient law enforcement system which

is able to produce a credible track record in fighting organised crime.

Expected results to be achieved with IPA II support include the following:

A solid track record of continued investigations, prosecutions and final convictions in

cases of organised crime;

Enforcement of anti-mafia and anti-money laundering legislation improved and their

effective implementation ensured;

Integrated Border Management improved including (as regards irregular migration)

through enhanced capacities of the border police, improved cross-border and inter-

agency co-operation and investments in infrastructure;

Addressing trafficking in human beings improved;

More effective action against drug production and trafficking, as well as sustained

impact of drug prevention, as well as demand and supply reduction achieved.

The indicator to measure the achievement of the expected results include (see Annex 2):

Progress made towards meeting accession criteria (EC);

The types of action will include technical assistance for capacity building and policy reforms

regarding law enforcement incl. integrated border management. Assistance will be provided

to improve the police and prosecutor offices infrastructure in terms of buildings and

equipment, provided that there is a clear commitment and progress in implementing the

reforms in the sector and that the infrastructure can be operated and maintained.

21

With respect to the conditions for sector support, the National Cross-cutting Strategy on

Fight against Organised Crime, Trafficking and Terrorism for 2013-2020 and the related

action plan for 2013-2016 are in place since July 2013. These strategies will be part of the

NSDI 2014-2020 as well as a forthcoming National Strategy on Integrated Border

Management and the National Strategy on Public Order. The lead Ministry in the home affairs

sector is the Ministry of Interior which is responsible for the expenditure programmes of the

Albanian State Police. The coordination of the police and other law enforcement agencies,

such as the prosecutor's office, the courts, and joint investigation units, needs improvement.

Similarly, monitoring and coordination of donors through sector working groups need to be

strengthened. Overall, sector approach might be foreseen in the second half of IPA II,

provided that the conditions are in place, especially concerning existing strategies as well as

coordination and performance monitoring.

2.1.4. Type of financing

The assistance to home affairs related reforms and investment will preferably be through

sector budget support if the conditions are met. Before the eligibility is established, service

contracts, twinnings and other13

will be used to deliver the assistance. The participation in

relevant Union Programmes will be supported and details decided later at the time of

programming.

2.1.5 Risks

One risk which could affect the achievement of the intended objectives and results are the

financial and human resources available to carry out the reforms. It is therefore important to

strengthen both (i) the capacities of the Albanian authorities to monitor reform progress and

take corrective action, and (ii) the involvement of independent monitoring for recommending

corrective action to be taken. The political dialogue on the key priorities related to corruption

and organised crime (see above section 2.1) will play a role in monitoring the risks and

suggesting corrective action.

3. Environment and Climate Action

3.1. Needs and capacities in the sector

This sector covers capacity building, support for the adoption of EU-aligned legislation and

infrastructure investments, notably in water, floods and waste management as well as climate

change actions.

Previous assistance included different operations (technical assistance, equipment and

investments) in order to align the country with the extensive and complex EU regulatory

framework and to better shape the policy development. The support first of all focused on the

capacity of central and local institutions to enforce the relevant sector legislation and to

monitor the level of pollution (air and water). The assistance also included a series of

infrastructure projects to build wastewater collection and treatment facilities along the

Adriatic coast with the purpose of safeguarding the sea water. Other complementary areas,

such as nature protection and climate change, have also received IPA support. Overall, EU

assistance over the period 2007-13 amounts to more than EUR 126 million. Various donors

provide assistance to the sector; among them IFIs with loans from the World Bank, the EIB,

13

For instance from multi-beneficiary assistance or TAIEX

22

the EBRD, and other donors such as Germany, Italy, Japan, Austria, Sweden, Switzerland and

the United Nations.

Important lessons learned from IPA I are that (a) capacity building and investments require a

minimum level of human resources in terms of both skill and number; (b) the ownership for

EU funded investments is jeopardised if they are not linked to the sector strategies and

budgets of the relevant Ministries; (c) that infrastructure development requires strong and

efficient coordination between Ministries at central level and with local government

institutions; and (d) that land availability for infrastructure construction is a serious constraint

in Albania. Moreover, basic conditions in terms of construction permits, land titles and

operating and maintaining resources must be met in order to ensure sustainability of the

assistance. Finally, future feasibility studies should carefully assess institutional due

diligence.

Albania is at a very early stage of alignment with the acquis in this sector and the challenges

in this sector are still manifold. Priority needs include further development of capacities at

both central and local level government for developing and implementing policies. Further

alignment with the EU environment and climate policies and legislation is needed, with

effective implementation ensured. This includes in particular climate legislation, monitoring,

reporting and verification of greenhouse gases emissions; effort sharing decision; fluorinated

gases; ozone-depleting substances; vehicle efficiency and fuel quality standards; carbon

capture and storage and other relevant legislation.

Investment needs in the water sub-sector are substantial,14

whilst management capacity

constraints exist. Similarly, waste management is underdeveloped with frequent illegal dumps

and informal landfills, poor waste collection systems and minimal waste recycling. The

operation of several investments, notably in the water sector, which have been supported by

IPA I, is not at a satisfactory level yet. Albania is susceptible to climate change, notably

flooding and land erosion, at certain times. Since Albania relies heavily on hydropower,

erratic rainfall is occasionally causing disruptions in the electricity production. Overall,

climate change mitigation and adaptation measures are necessary in these areas.

3.2. Objectives, results, actions and indicators

The assistance in the first period of IPA II (2014-2017) will support Albania with the

objective to (a) build capacities for managing the sector in line with EU policies and

consolidate earlier efforts and (b) operate and maintain existing and new public infrastructure

investments in a sustainable and efficient way. An additional objective is to prepare a pipeline

of feasible, mature, and implementable environmental infrastructure investments. In the

second period of IPA II (2017-2020), it is envisaged to provide additional support for actual

investments in priority areas.

The results to be achieved with EU support include the following:

Environment and climate change polices and legislation are further aligned with EU

legislation and best practice and effectively implemented;

Sustainability of investments through better coordination of relevant stakeholders is

improved;

Sound funding for operating and maintenance expenditures is ensured;

Pipeline of investment projects in line with the existing master plans established;

14

At least 2.4 bn are estimated to be needed to comply with the waste water directive as well as annually 52 m in operating costs.

23

Waste water collection and treatment has increased; In line with the EU legislation the

largest agglomerations and environmentally sensitive areas are prioritised;

A master plan for waste management investments, especially recycling, and a project

pipeline for the implementation are available;

Number of functioning waste management, especially recycling, facilities have

increased;

A single selection mechanism for identifying priority investments in water, flood

protection, waste management and climate change, considered for blending IPA II

grants with IFI loans, is functioning;

Climate change mitigation and adaptation strategies and action plans at local, regional

and national level developed and implemented.

The indicators to measure the achievement of the results will include (see also Annex 2)

Progress made towards meeting accession criteria (EC);

Population connected to waste water collection systems (national statistics).

In terms of the action to be supported, a differentiation is needed between: (a) development of

policies, legislation, planning and preparation of investments and (b) the support to

implementation of policies and actual investments, incl. ensuring their operation and

maintenance.

The development and implementation of the environment and climate action policies, as well

as the approximation of the regulatory framework with the EU legislation, will be supported

through technical assistance, provided via twinning, service contracts, TAIEX and

international specialised agencies. The technical expertise will also strengthen the capacities

of the central and local institutions to enforce the relevant regulatory measures for the

protection of the environment. If needed, the support will also include specific equipment to

monitor sector policy benchmarks. Support will also be provided for public awareness raising

and meaningful integration of environment into other policy areas such as energy, transport,

agriculture.

The preparation of feasible, mature and implementable infrastructure investment projects will

be supported through technical assistance for feasibility, appraisal, impact assessment,

designs and other studies. It is envisaged that all EU and other donor funding will be included

in one single prioritisation and selection process. IPA II funds will primarily be invested for

feasibility studies, impact assessments or design studies in order to prepare bankable

investments which meet eligibility criteria for funding from IFI or other donors.

In order to ensure that loans are able to address the priority development needs and to speed

up investments, considering the limited public resources available, IPA II funds could be

provided to co-fund actual investments and combine loans with a limited amount of grant

funding. The precise nature of co-funding investments depends on the available resources, the

quality and maturity of the proposed projects, the cooperation with other donors, the

completion of on-going appraisals and feasibility studies, and on the availability of sufficient

funding for adequately operating and maintaining the investments (see above). The preferred

modality for delivering assistance is the management of EU funds by the same donor that

provides the loan for the investment, in order to maximise the efficiency of the

implementation in respect of timing and economies of scale in contracting.

With regards to the conditions for sector support, it has to be noted that there are different

Ministries, strategies and budgets covering water and waste management. In addition, local

24

government institutions are responsible for infrastructure at the local level. Water and waste

issues should therefore be treated separately in order to reduce the complexity and allow

effective management of sector support. Regarding strategies, a National Water Strategy

2011-2017, the Water Investments Master Plan 2011-2026, and the National Waste

Management Strategy Action Plan 2012-2025 will be integrated in the new NSDI. In this

regard, it is essential to ensure that the sector strategies and action plans are fully in line with

the relevant EU policies and requirements of the acquis. As mentioned above, the experience

from past assistance has shown that the currently allocated resources are not sufficient to

cover adequately the operating and maintenance expenses. These shortcomings must be

addressed as a matter of priority, before further assistance to actual investments is justified. It

is therefore envisaged to support the various Ministries in the first half of IPA II (2014-2020)

with a focus on developing the basic elements of a sector approach such as strategy and

implementation plan development, budget planning, institutional and organisational

development and coordination amongst others. Once the basic elements are in place, it is

envisaged to continue the assistance with a more clearly defined sector approach which might

include sector reform contracts (sector budget support) as preferred delivery mechanism for

the EU assistance.

3.3. Type of financing

Sector budget support is the preferred type of financing in the environment sector, or

respective sub-sectors such as water or waste management, if the conditions are met. Before

the eligibility is established, service contracts, twinnings and other15

will be used to deliver

the assistance. Regarding investments, a coordinated approach to blending of IFI loans with

IPA grants is foreseen through the Western Balkan Investment Framework. The participation

in relevant Union Programmes will be supported and details decided later at the time of

programming.

3.4. Risks

There is a risk that the resources available both in terms of funds and human resources are not

sufficient. Therefore the mitigating strategy is to focus on the affordability of new

investments and make sure that existing investments as well as new ones are operated and

maintained adequately. New investments will only be supported once the basic requirements

for adequate management are in place. A close cooperation with IFIs is necessary in order to

maximise efficiencies.

4. Transport

4.1. Needs and capacities in the sector

This sector covers capacity building, policy development, legislation approximation, and

investments in transport, incl. regional and EU integration of the road, and rail networks,

aviation and ports.

Substantial IPA I funds have been mobilised for this sector, with investments on small and

medium-scale road infrastructures in cooperation with IFIs, amounting to over EUR 91

million. Significant technical assistance is still provided for preparation of the national

legislation in line with the EU regulatory framework, capacity building, and preparation of

strategic documents. In addition, IPA I assistance was provided to establish a unified road

15

For instance from multi-beneficiary assistance or TAIEX

25

network connecting peripheral communities to the main national and regional transport lines,

notably the South East Europe Transport Observatory (SEETO) Corridor VIII (east-west axis

from Durres to Pogradec) and the SEETO Route 2 (north-south axis from Shkoder to

Tepelene-Gjirokastra). The EU has also financed intersections along these two axes, e.g. the

Vlora and Rrogozhina bypasses and supported the construction and upgrading of rural roads.

In terms of donor coordination, funds for transport infrastructure development are provided

primarily in the form of loans from IFI such as the World Bank, the EIB, the EBRD and also

from the bilateral cooperation with Germany and Italy. Some transport projects are funded by

the Kuwait fund for Arab Economic Development, the Saudi Fund for Development, the

Organisation of the Petroleum Exporting Countries (OPEC) fund for International

Development and the Abu Dhabi fund.

In addition to the constraints mentioned above for the environment sector as regards large

infrastructure, the transport sector (which has absorbed important investments in the last

period) suffers from the limited availability of funds for maintenance. This is a reason of

serious concern. It is therefore important that both resources and tools for public financial

management, needed for ensuring long term commitments, should be a pre-condition for

successful infrastructure investments. Institutional assessments, such as due diligence

assessments, of implementing institutions should be included in future feasibility studies. It is

essential that planning of transport infrastructure investments is done in line with the priorities

identified in the government's strategic plans and the South East Europe Transport

Observatory (SEETO) comprehensive network development plans16

. In addition,

infrastructure maintenance should be carried out in line with already existing asset

management tools and manuals.

The challenges in the transport sector include the already mentioned inadequate allocation of

resources for infrastructure maintenance (25% of what is needed). Moreover, Albania has

considerable needs for additional investments in line with the SEETO work plans. There is

also the need for a definition of clear national priorities for investments. These should include

a relatively small manageable number of projects in order to allow a timely completion rather

than spreading investments over a big number of projects where a timely completion cannot

be ensured. Furthermore, there are specific challenges to further develop transport policies,

for instance regarding multimodality, security and safety standards for all modes of transport,

urban mobility, the aviation market, and others in line with EU, in particular climate action

policies.

4.2. Objectives, results, actions and indicators

Due to the issues of insufficient maintenance of transport infrastructure assistance in the first

part of IPA II (2014-2017) will support Albania with the primary objective to further develop

transport policies and to maintain and operate existing public infrastructure investments in

sustainable and efficient way. In addition, the objective is to create a pipeline of feasible,

mature, and implementable infrastructure projects. In the second part of IPA II (2017-2020), it

is envisaged to provide additional support for actual investments.

The results which are expected to be achieved with EU support include:

Transport polices and legislation further aligned with EU legislation and best practice;

Administrative capacity for managing transport policies improved;

16

See http://www.seetoint.org/library/multi-annual-plans/

26

Sustainability of investment projects improved through support to realistic

maintenance programmes and to the coordination of relevant stakehol